Tag: Economic Order Quantity

5 Buyer Decisions That Increase Costs

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Here are  5 things that can unnecessarily add costs or delays to your Precision Machined Part:

  • Small  Order Quantities
  • Material Selection
  • Special Diameter Holes
  • Close Tolerances
  • Unnecessarily Fine Surface Finish
“Parts is parts.” But costs are influenced by decisions on manufacturability.

Small  Order Quantities are a two edged sword. Minimizing inventory on hand is an important Lean concept; but often the cost of separate setups for small runs is more expensive than holding a modest inventory. If your parts are standard to you, getting the economic order quantity correct can save you money by minimizing what you have to pay for set up costs. (And by the way, we’re working like crazy to reduce those setup costs!)

Material Selection can increase costs of production and can mean missed deliveries if the grade is “just not  commercially available.” Engineering requirements for the end use must be paramount, but the material contribution to manufacturing costs need to be evaluated as well. The reduction in suppliers, suppliers’ inventories, and every one’s attention to ‘Lean’  along the supply chain means that the ‘perfect material’ for that part just might be a six month lead time rolling lot accumulation with no assurances of delivery…

Special Diameter Holes are often overlooked as a cost driver. But with every non standard hole diameter specified, The suopplier will need to purchase higher cost non-standard drills, reamers, and plug gages. Lead times for specials could also mean your parts are delayed while tools are made for your job. Are you certain that a standard hole size won’t do the job needed?

Close Tolerances are a source of pride to the craftsmen of the precision machining industry. Our people, processes, and engineering can assure that the hole delivered is as specified. But if you specify tolerances that are ‘closer than needed,’ the extra attention, more frequent tool adjustments and changes, and loss of productivity to make those adjustments can add incrementally to the cost. We can make what you need- are you asking for more precision (cost) than you need?

Unnecessarily Fine Surface Finish, like close tolerances can add higher costs when specified unnecessarily. What is the reason for the finish specified? While today’s modern tooling and machines are able to provide better surface finish than machining technology of the distant past- for some requirements a separate grinding, shaving, burnishing or other treatment may be required. If there is not really a close fit, sliding fit, and there is no movement on/of the surface, over-specifying surface finish can needlessly increase your part costs.

Practicing ‘Lean’ and minimizing waste is not just the responsibility of the producer. As the 5 items above point out, eliminating needless waste is also a responsibility of the customer.

As my grandparents- who came through the WWI, The Great Depression, WWII rationing, and a host of other economic and life challenges- used to say to me:

“Take what you need. No more, no less.”

I think it’s great advice.

SMED vs EOQ-The Customer Makes The Difference

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A number of customers of the precision machining industry have started telling their suppliers (Us!) that we need to adopt SMED (Single Minute Exchange of Dies) Techniques so that we can reduce costs. We make it a rule never to prescribe solutions when we haven’t first diagnosed the problem…

No prescription till you diagnose the REAL PROBLEM.

Reducing setup time is important, but if that is not the constraint that is limiting your ability to serve your customer, why would you address that first?
The real issue that the customer has not brought to the table is lot size, economic order quantity (EOQ).  Given an order quantity of 100 parts, if changeover time is 8 hours  on a part with a one minute cycle time

  •  to make his parts originally takes 480 minutes of set up time.
  • Plus 100 minutes (100 parts at one minute per part) to produce;
  •  Total 580 minutes or 5.8 minutes time per part.

The setup time is 480% of the actual process  time to make the parts. 480/100= 480%
Reducing the set up to 4 hours set up, its now 240 minutes set up time plus 100 minutes to produce total 340 minutes or 3.4 minutes time per part. The setup time is now just 240% of the actual process (Cutting) time. The customer is saying that you should do this.  And as far as you can, he is right.
 But lets look at what the customer’s order quantity does to affect this.
 Increasing  just the lot size from 100 to 1000 pieces 

  • Results in the time per piece on the 8 hour setup being 480 minutes for set up plus 1000 minutes, or 1.480 minutes total time per part. 
  • The ratio of setup time to total time is now just 48%of the process time.

THATS A TEN FOLD REDUCTION!!! This is where the Bang for the BUCK is! If you could get your setup down to four hours, you’d be at 24% ratio of setup to total time.
 On 10,000 pieces it becomes,   at 8 hour set up, 480 minutes setup plus 10000 minutes process time; or about 1.048 total time per part;  4.8% is the ratio of set up to the process time.
WE CAN SEE that while reducing set up time is important and something that you can control, It is the increase in the lot size that is the most powerful determinant of the amortization of cost of setup.  And your customer holds those reins.
 ECONOMIC ORDER QUANTITY is in your customer’s control and ultimately delivers drives far greater savings than your  cutting set up time in half, and in half again as we have just shown.
 What he wants to ignore is that you have to set up the machine regardless of his lot size and he has to pay for it. So he wants you to reduce that set up as much as possible. However, there is no free lunch, there is always a law of diminishing returns, and he has to give you an order quantity that makes it profitable for you to set up your machine and produce the number of parts required.
Reducing setup time is important, but if that is not the constraint that is limiting your ability to serve your customer, why would you address that first?
Just cause that medicine sounds good to you Mr. Customer, doesn’t mean that it is the magic cure for everything.  Increasing your Order Quantity may actually drive substantially larger savings.

Size (of order) Matters.

Sometimes, more is better.
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